In my last public pensions visualization post, I focused on the sources of the growth of the unfunded liability, pointing out that while undercontributions made a significant percentage of the causes, the largest cause by far was the boosting of benefits in years that investments did well.

But we didn’t look at exactly how bad the unfunded liability was, did we?

Now I’m adding a new aspect to my unfunded liability development graph, and that’s actuarial assets (let us ignore all the smoothing stuff for right now. This is complicated enough as it is.) If I put assets on the scale, this is what results (purple area is the asset level, for comparison):

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Oh, the unfunded liability in 2014 is about 25% of the assets. This translates to a funded ratio of 80% (yes, yes, I know.)

Now, while being underfunded is concerning, this is not necessarily horrible.

So let me show you a graph of something horrible: the Illinois Teachers Retirement System.

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Yes, you see that correctly. The unfunded liability is dwarfing the asset amount. The Illinois TRS is only about 40% funded.

Rather than go through the whole narrative of what caused the unfunded liability to get that large (especially since there were shenanigans in trying to push it down), let me just cut to the chase: there are two large causes to the growth of the unfunded liability for Illinois TRS for 1995 – 2014:

1. Undercontribution (54% of the change, and no, I’m not counting the pension obligation bond as a contribution)
2. Investment experience (39%, even after shenanigans of switching between market and smoothed value when it suits)

Those two together make up almost all of the cause of the Illinois TRS poor performance.

Indeed, I think we will find that those two things will be the major cause for most of the egregiously underfunded plans out there: primarily undercontributions, and then investments in a close second.

It takes more than just bad investments to sink the funded status… usually. It generally takes years of not putting enough money into the fund.